Car sales are down due to increasing intrest rates.Banks and Car companies to boost sales are cutting cost at dealers end to pass on some to the prospective customers.

Two of the largest players in car financing have decided to slash interest rates by 2% in an effort to keep consumer interest going. This is being done by reducing the commission that banks pay to automobile dealers, thus retaining the rates at a level which makes it affordable to buyers.

Both HDFC Bank and Kotak Mahindra, who figure among the top three financiers of four wheelers, will reduce their rack rates by 2%. Kotak Mahindra Prime now charges an interest rate of close to 16%, which will now be brought down to 14%.

HDFC Bank will bring down its rates from 14.75-15.5% to 12.8-14.16% depending on the tenure of the loan, according to bank officials. Financiers currently pass on a commission nearing 5% to dealers. Dealers, in turn, used to pass on part of this commission to customers. Thus, the final rates to customers would be 13.75-15%.

Interest rates for car loans have gone up by close to 1.5-2% this year, impacting sales. In July, for the first time, sales of four-wheelers fell for the first time in absolute terms. Sales growth has been decelerating since April. Not all dealers were passing on commissions to the customers. In bigger cities, dealers may pass on more commissions, but in smaller cities, that was not the case. Moving forward, the move would bring in more transparency, as the customer will be more aware of the rates.

Apart from the interest rate reduction being planned by some financiers, ICICI Bank is planning to launch a floating rate product in the next one week to ten days. Kotak Mahindra is also considering a similar product, though it has not yet decided on the timing.

Sources say that ICICI, which discontinued its car and commercial vehicle floating rate product earlier this year, is now planning a big-ticket relaunch backed by aggressive plans of migrating its entire car loan business to floating rate.